Breaking VAT news from around the world, including updates from the European Union, France, Italy, Germany, Australia, Switzerland and Hungary.
VAT and Administrative Cooperation Proposals published
The European Commission has published proposals for new rules on administrative cooperation between Member States’ tax collecting authorities to fight VAT fraud more efficiently. Key measures contained within the proposals include:
- the launch of an online system for information sharing within the EU’s existing network of anti-fraud experts;
- opening new lines of communication and data exchange between tax authorities and European law enforcement bodies on cross-border activities suspected of leading to VAT fraud;
- sharing key information on imports from outside the EU between tax and customs authorities aimed at improving customs procedures currently open to VAT fraud; and
- sourcing car registration data from other Member States to combat instances where new cars have been treated under the second-hand cars margin scheme.
What this means
The Commission has had a long-held desire to ensure that appropriate mechanisms are in place to reduce the incidence of cross border VAT fraud, which is estimated to cost the EU in the region of €150bn per year. These latest proposals are a further part of its concerted anti-fraud strategy, although they do need to be submitted to the European Parliament for consultation and to the Council for approval before adoption.
European Commission proposes new rules on VAT rates
Following up on the ‘cornerstones’ for a new definitive single EU VAT area, and the VAT Action Plan towards a single EU VAT area, the European Commission has put forward its proposals to give Member States more flexibility to set VAT rates and reducing VAT costs for SMEs. Although the minimum standard rate of VAT would remain at 15 percent, Member States would be able to put in place:
- two separate reduced rates of between 5 percent and the standard rate chosen by the Member State;
- one reduced rate set at between 0 percent and the reduced rates; and
- a VAT ‘zero rate’.
Member States will be required to ensure that reduced rates benefit the final consumer, and the proposals envisage that a Member States would need to maintain a ‘weighted average VAT rate’ of at least 12 percent to those transactions for which VAT cannot be deducted.
What this means
The proposals would allow all goods currently enjoying rates different from the standard rate to continue to do so, but the current list of goods and services to which reduced rates can be applied would be abolished and replaced by a new list to which the standard rate of 15 percent or above would always be applied.
While the current thresholds for exemption from VAT registration would remain, the proposals would introduce:
- a €2 million revenue threshold across the EU, under which small businesses would benefit from simplification measures, whether or not they have already been exempted from VAT registration;
- the possibility for Member States to free all small businesses that qualify for a exemption from VAT registration from obligations relating to identification, invoicing, accounting or returns; and
- a turnover threshold of €100,000 which would allow companies operating in more than one Member State to benefit from the VAT exemption.
Opportunity for EU companies to claim a retrospective refund of VAT paid in France
Under European VAT law, an EU company can claim a refund of VAT paid in another member state by lodging a claim via its ‘home’ tax authority, to the member state in which the VAT was incurred, but this is subject to a strict deadline of no later than 30 September in the year following the year the VAT was incurred. On that basis, VAT paid in a member state in 2016 could have been claimed back until 30 September 2017 (subject to all other substantive conditions being met). Tax authorities have traditionally rigorously enforced this deadline and would not accept belated claims.
However, in a recent court case, the Conseil d’Etat (French highest court), has ruled that an EU company should be able claim a refund of VAT paid in France even after the 30 September deadline has passed, as this deadline has never been formally enacted into domestic French VAT law.
Indeed, there is no formal deadline transposed into French law other than the general two year claim period under the ‘statute of limitation’ in the French regulations.
What this means
As a result of this, EU businesses that incurred French VAT in 2016, but have not yet recovered it, are still able to do so, until the end of 2018 (unless there is any amendment to the French tax code before that date). Affected businesses should therefore review their records to establish whether there is such an opportunity.
This ruling will not apply to non EU businesses making claims to French VAT under the provisions of the EU 13th VAT Directive, since the deadline for making claims on that basis is clearly set out already (such claims should be made by 30 June of the year following that in which the VAT was incurred).
The new VAT Group regime
From 1 January 2018, Italian VAT legislation allows a group of taxable persons established in Italy to operate as one taxable person with a single VAT number such that transactions between VAT group members being ignored for VAT purposes (a provision known as a ‘VAT group’). The group must meet the following requirements:
- The entities must have a tax residence in Italy and must be carrying out business, artistic or professional activities.
- They must have financial, economic and organisational links.
- Financial links mean that, from July 1st of the previous year until the year in which the option is exercised, if there is a direct or indirect relationship of control between the entities or they are controlled (directly or indirectly) by the same entity (based in Italy or in another country with which Italy signed an agreement for free information exchange).
- Economic links exist if the entities carry out the same core business or a business that is complementary to the core business;
- Organisational links refer to legal coordination between the management boards of the entities.
The following entities cannot be part of a VAT Group: foreign permanent establishments of persons established in Italy, persons in ordinary liquidation, and persons subject to bankruptcy proceedings.
If the VAT group is applied for voluntarily between 1 January and 30 September 2018, it will take effect on 1 January 2019; if between 1 October and 31 December 2018, it will take effect on 1 January 2020.
VAT group regulations became effective in Italy on 1 January 2018 after consultation with the European VAT Committee, and will apply for a period of at least three years (automatically renewable). The group representative must exercise the option by filing a statement containing basic information such as details of the members of the group, how they fulfill requirements of the rules, etc. Further details of how to make the submission (which will be electronic) are awaited from the Italian Revenue Agency.
What this means
All transactions carried out between the members of the group will be ignored for VAT purposes, whether these involve services or the sale of goods.
This is clearly therefore of benefit to group members for whom VAT represents a cost e.g. because of the VAT exempt nature of their activities, and there is an administrative benefit to be achieved from not having to raise invoices for intra VAT-group transactions.
A number of EU Member states have VAT grouping provisions and it will be interesting to see whether the ability to enter into transactions without a VAT charge between group members is seen as an opportunity to exploit the provisions by entities that are unable to recover (e.g. banks, insurance companies) such that anti-avoidance legislation is required to prevent abuse.
Third party rebates may provide a VAT reclaim opportunity
The CJEU has ruled in a German case (Boehringer Ingelheim Pharma – C-462/16) that, where a supplier provides a rebate or retrospective discount to a party outside the supply chain, the rebates should be excluded from the taxable amount and therefore the charge to VAT (following the principles established in the earlier Elida Gibbs case) when calculating VAT payable as output tax. The CJEU notes that the European VAT Directive obliges member states to reduce the taxable amount whenever, after the conclusion of a transaction, part or all of the consideration remains un-collected by the taxable person. Consequently, a fundamental principle of VAT is that the ‘taxable amount’ is established by the consideration (payment) actually received, and that the amount of VAT to be collected by the tax authority should correspond to that consideration. In Boehringer’s case, even though it was statutorily obliged to pay rebates to public and private health insurers, the CJEU notes that there is no real difference between this and rebates paid in other circumstances and that the amounts received are as a result of those rebates. Therefore, even though the private insurers were not the direct beneficiary of the pharmaceuticals supplied, this does not break the direct link between the supply of goods and the consideration received.
What this means
As a result of this CJEU ruling there may be a VAT reclaim opportunity for business making rebate payments to assess whether they have paid too much VAT as a result. This decision indicates that the UK’s position on rebates may be too narrow, and that rebates paid to third parties, particularly where there is a statutory obligation to do so, may have resulted in overpaid output tax. Businesses should therefore review their VAT treatment in such cases.
Changes in VAT treatment of consignment stock
Foreign companies often have consignment stock located in Germany albeit that German VAT law does not contain any simplifications for supplies via consignment stock in Germany. Thus, according to the German VAT guidelines, a foreign business with consignment stock in Germany has had to VAT register in Germany until the point at which the goods are allocated to the customer, at which point the transaction would be regarded as a domestic supply subject to VAT. The original movement from the other EU Member State into the consignment stock was treated as a deemed intracommunity transfer of own goods to Germany.
Following recent decisions of the German Federal Tax Court (decisions dated 20 October and 16 November 2016), the German tax authorities have changed their point of view in certain cases. If the customer is already known at the moment of the dispatch in the other EU Member State the transaction can be regarded as a direct delivery from the EU Member State to Germany. This applies, if the customer has placed a binding order prior to dispatch or has already paid for the goods. Additional requirements are that the goods stay in consignment for only a brief time and the customer has unlimited access to the goods. If all requirements can be fulfilled, a VAT registration in Germany is no longer necessary.
What this means
Foreign companies with German consignment stock that are already VAT registered in Germany need to consider whether the new rules apply to them as there may be an opportunity to cancel the registration as a result of these changes. However, the application of the previous German VAT guidelines can continue to be applies until 31 December 2018.
Foreign companies with German consignment stock that are not already VAT registered in Germany or foreign companies that are intending to use consignment stock located in Germany should review whether they can take advantage of the new guidelines and avoid a German VAT registration requirement.
GST compliance savings for non-resident businesses
The Australian Goods and Services tax (GST) landscape for cross-border transactions has undergone significant changes recently which can be summarised as follows:
Certain ‘B2B’ supplies made by non-resident businesses have been removed from the Australian GST system, many of which were caught under the previous law which treated those supplies as occurring within Australia. The measures are designed to prevent non-resident businesses being unnecessarily drawn in to the Australian GST system through B2B transactions and are aimed at reducing the Australian GST compliance burden on those non-resident suppliers.
Broadly, the changes transfer the GST obligations from some non-resident suppliers to the Australian GST-registered recipients (by way of a ‘reverse charge’ provision), whilst other non-residents are removed from the Australian GST system altogether. Supplies made by a non-resident supplier will no longer be within the Australian GST provisions where:
- The supplier does not make the supply through an ‘enterprise’ that the supplier carries on in Australia; and
- The supply is one of the following:
- An inbound intangible supply (i.e. not a supply of goods or real property) which is ‘done’ in Australia, and made to an Australian-based business recipient;
- An intangible supply (i.e. not a supply of goods or real property) which is done in Australia, and made to a non-resident in connection with an enterprise carried on outside Australia;
- A supply by way of transfer of ownership of leased goods made by a non-resident recipient in connection with an enterprise carried on outside Australia, and the lessee made an earlier taxable importation and continues to lease the goods on similar terms and conditions as before; or
- The modification of an existing lease agreement between a non-resident lessor and a continuing Australian lessee.
Note, the concept of an Australian-based business recipient is extremely important in the context of these changes. This is because where a non-resident makes a supply to such a recipient, it is the recipient who takes on the Australian GST obligations, and who must self-assess a potential reverse charge. An entity is an ‘Australian-based business recipient’ if the:
- entity is GST registered; and
- entity carries on its enterprise in Australia; and
- entity’s acquisition is in connection with its enterprise.
Other recent GST changes include:
- Goods brought into Australia in conjunction with assembly or installation services are now deemed to be two separate supplies, with the Australian GST treatment to be determined separately by reference to the circumstances of each separate supply.
- Supplies physically provided to Australian customers, but legally made under subcontract to a non-resident, with payment coming from the non-resident, are now treated as a GST-free export supply of services, provided the actual recipient of the services is an ‘Australian-based business recipient’.
- The provision of warranty services by an Australian resident made to a non-resident, in conjunction with an earlier supply of goods made by the non-resident, and to which the later warranty repairs apply is now a GST-free export supply made by the Australian resident.
- The value of GST-free supplies made by a non-resident which are not made through an enterprise carried on by the non-resident in Australia, are now excluded in calculating the GST registration threshold. Many non-residents were required to register for Australian GST, even though they made only GST-free supplies, and had no net GST liability.
- A new definition as to when a non-resident carries on an enterprise in Australia has been introduced which includes concepts familiar in direct tax practice, but with a slightly different meaning for GST purposes. A non-resident will carry on an enterprise in Australia if:
- Certain people functions occur within Australia; and
- There is a minimum physical and/or temporal connection with Australia.
The people functions must be performed in Australia by:
- the non-resident individual (if appropriate);
- an employee or officer of the non-resident entity; or
- an agent (or employee) who has and habitually exercises authority to conclude contracts on behalf of the non-resident entity, and who is not an agent of independent status.
The physical Australian connection will be satisfied where the non-resident:
- carries on its enterprise through an Australian fixed place; or
- has carried on the enterprise through one or more Australian places for more than 183 days (or intends to do so) within a twelve-month period.
What this means
Non-resident Australian businesses could well see a reduction in their Australian compliance costs as a result of this changes and should therefore consider whether these new rules might apply to reduce their Australian GST obligations. Arrangements in place pre-1 October 2016 remain unaffected by these changes.
New VAT rates effective from 1 January 2018
From 1 January 2018 new VAT rates apply in Switzerland as summarised in the table below:
|VAT rates||Standard rate||Special rate||Reduced rate|
|./. End of the financing program of the disability insurance by December 31, 2017||-0.4%||-0.2%||-0.1%|
|+ New financing program of the railway infrastructure (from January 1st, 2018 until December 31, 2030)||0.1%||0.1%||0.1%|
|New rates effective from January 1st, 2018||7.7%||3.7%||2.5%|
It is important to note in the context of these changes that the ‘tax point’ in respect of the delivery of goods or services is important in ensuring that the correct VAT rate is applied. All goods and services delivered up to and including 31 December 2017 shall be invoiced at the old VAT rates. The goods and services delivered from 1 January 2018 shall be invoiced with the new VAT rates.
If the goods or services in question are partly taxable at the old rates and partly at the new rates due to the period during which they were provided and are listed on the same invoice, the invoice should disclose separately the dates or periods of delivery of goods or services and the proportion of the amount of the provisions of goods or services for each of the periods. If it is not the case, goods or services invoiced should be declared in the VAT return at the old, higher, rates.
Significant changes in VAT effective from 1 January 2018
The Swiss government also aims to remove the competitive disadvantage suffered Swiss companies at the expense of foreign customers carrying out business in Switzerland raised by Swiss VAT by reducing the turnover threshold by which foreign businesses are required to register for VAT.
Previously, foreign companies could avoid a liability to Swiss VAT provided that their annual turnover in Switzerland was under the threshold of CHF 100’000. This applied even if the worldwide turnover of a foreign company was higher than CHF 100’000. However, Swiss companies with taxable turnover of more than CHF 100’000 were unable to similarly avoid a Swiss VAT liability.
However, with the revised Swiss VAT Act, the worldwide turnover generated by a foreign and a Swiss company from supplies will need to be taken into account for the purposes of assessing the VAT registration threshold and no longer just the turnover in Switzerland. The turnover limit of CHF 100’000 remains. Consequently, many companies providing taxable supplies in Switzerland will be liable to VAT and will have to face a mandatory registration to Federal Tax Administration, appoint a tax representative in Switzerland, make a short-term deposit directly at the tax administration or present a bank guarantee, file quarterly VAT returns and prepare annual reconciliation between the turnover of the company and the VAT returns completed. Some Swiss companies that had been exempted from the VAT liability will also have to submit a registration application if their worldwide turnover exceeds CHF 100’000 (especially companies supplying mainly services or goods abroad).
Notwithstanding the level of turnover however, businesses that only provide services which are subject to Swiss VAT but accounted for by the customer under a reverse charge will be exempt from registration. (with the exception of telecommunications and electronic services provided to private individuals).
The Swiss VAT revisions also impact mail-order companies and will come into force on 1 January 2019. From that date, mail-order companies will be liable to tax if their annual turnover from small consignments that are imported tax-free in Switzerland is CHF 100’000 or more. Consequently, such companies will have to register to Swiss VAT and to invoice Swiss costumers with Swiss VAT. As a result, the customers will no longer have to pay the taxes and fees levied by Customs upon import. Moreover, mail-order companies will have to provide a deposit unlimited in time to the VAT administration to cover any legal claims. This deposit does not generate any interest and can be issued by a bank domiciled in Switzerland, or provided in cash deposit directly to the tax administration.
What this means
The changes noted above will impact on all overseas businesses conducting business in Switzerland and care should be taken to ensure that the changes are understood and implemented.
Real Time Invoice Reporting (’RTIR’)
Hungary plans to introduce a real-time invoice reporting obligation from 1 July 2018. Any Hungarian VAT registered entity issuing invoices with a VAT amount above HUF 100,000 (approx. EUR 320) to another VAT registered entity in Hungary will be required to report these invoices promptly to the Hungarian Tax Authority (HU TA). This includes businesses established outside Hungary but registered for VAT purposes there. Failure to report the invoices in real time mode could attract an administrative penalty of up to HUF 500,000 (EUR 1700) per invoice.
The new rules also apply to businesses established outside Hungary but registered for VAT in Hungary but is not applicable to sales to private consumers (’B2C supplies’)
What this means
It is imprtant to consider whether a liability to register for RTIR given that the penalties for non-compliance ares much higher than the maximum penalties for failure to submit VAT return/Intrastat/EC Sales and Purchase lists combined. Failure to report the invoices in real time mode may attract an administrative penalty of up to HUF 500,000 (EUR 1700) per invoice.
Companies will therefore need to ensure that their invoicing software is funlly compatible with the requirements of RTIR and capable of real-time data transfer by 1 July 2018 at the latest.